Peter Lynch is long-winded. He recommends being able to summarize your reasons for investing in a stock in two minutes. That is much too long. We think you should be able to do it in just 27 seconds.
OK, so we're exaggerating to illustrate an important point. And that is that investors should be able to clearly and concisely explain why they are investing in a particular stock. To paraphrase Lynch, if you can't discuss your investment in such a way that a child will understand it, then you should probably rethink it.
The community members over at Motley Fool CAPS are already perfecting their ultra-brief investment pitches. Here's what TMFBreakerTAllan said about Starbucks (NASDAQ:SBUX), "Addictive. Legal. And still only one in my suburb of 55,000 people. When we get one or two more, maybe I'll put a time frame on this pick. Maybe." TMFBreakerDave was equally succinct in his assessment of Dell (NASDAQ:DELL) back in July: "This is an evergreen type of stock; in my parlance, that's one that you should tend to add to as it drops. Look at that balance sheet -- despite the selloff, Dell remains financially very strong."
Not everything gets a rosy outlook over at CAPS, however. TMFDoraemon challenged Baidu.com (NASDAQ:BIDU) back when it was still soaring through the stratosphere: "You can pick price to earnings, price to free cash flow, or even price to sales, and you can't find a way to make the valuation on this business make any sense. And assuming you could, what's the long-term competitive advantage here?"
When it comes to describing a stock, brevity is important. It focuses your thinking and forces you to understand the underlying business.
We feel so strongly about this principle that we've encouraged TMFElCapitan, a stalwart community member, to produce short stock-analysis videos over on CAPS to inspire others to get in the game. To get started, TMFElCapitan has posted some amusing video pitches on Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), and TiVo (NASDAQ:TIVO) among others. We've also provided a couple of hilarious ditches, like this video on Martha Stewart Living Omnimedia (NYSE:MSO):
The first several videos are funny and brief, though we'll be the first to admit that they are just teasers. As our community begins contributing, however, we're confident we'll be nailing the stock-thesis trifecta: great stock ideas that are also brief and funny. Why is "funny" part of the equation? Because once you start taking yourself too seriously -- in investing or anything else for that matter -- you're in big trouble.
Here's our stock video on Microsoft. On Apple. And on TiVo.
And head right this way to see all of the videos now on CAPS.
Baidu is a recommendation of Motley Fool Rule Breakers. Microsoft and Dell are Inside Value picks. Dell is also a Stock Advisor choice, along with Starbucks and TiVo. Martha Stewart Living is a former Stock Advisor pick.
John Reeves does not own shares in any of the companies mentioned in this article. The Motley Fool has a disclosure policy.
